However, Boekhout also reports on companies that cannot currently be helped with funding programs. “There are sectors in which companies will find it difficult to recover from the corona crisis quickly enough to bear the built-up debt burden,” said the Dutchman. “Such companies need fresh equity, otherwise it will not be possible for banks to grant them further loans.”
The “absolute majority” of Commerzbank corporate customers have been able to manage the corona crisis relatively well so far, said Boekhout in his first major interview as Commerzbank’s corporate customer board member. But of course the expected slump in the German economy will leave a clear mark on customers. “The climax of the crisis is still ahead of us,” fears the banker.
Michael Mandel, CEO of private customers, does not believe that Commerzbank itself is in trouble as in the financial crisis and must be supported by the state. “We have massively reduced our balance sheet total in recent years and strengthened our equity,” he said. The liquidity base is also much better than before the financial crisis. “Our buffers are significantly larger, that’s the big difference to 2008.”
Commerzbank does not want to change its strategy because of the corona crisis. “Our top priority is to keep business going and help our customers through the crisis,” said Mandel. “But that doesn’t mean that we deviate even one iota from our strategy.”
So far, the crisis has been more of a confirmation “that we are doing the right things,” emphasizes Mandel. “This applies, for example, to our focus on” Mobile first “, that is, the further development of banking offers for the smartphone.” Also the plans to do more business with existing customers and digitalization through the integration of the online bank Comdirect to push forward are still right even after the crisis.
Read the entire interview here:
Mr. Boekhout, Mr. Mandel, how are companies reacting to the corona crisis?
Boekhout: The uncertainty is huge because nobody knows how the situation will develop. We are currently having an extremely large number of customer meetings. The situation differs greatly from sector to sector. At travel agencies, coach companies or restaurants, all sales suddenly disappeared. Other companies have only declined sales, but can continue to work as before.
As a bank, what can you do for affected companies?
Boekhout: Many companies have drawn on existing credit lines and have thus obtained additional liquidity. And we have already received more than 18,000 new financing requests in the wake of the corona crisis. According to our first assessment, a large part of them meet the criteria for the KfW development bank’s loan program. In many cases, this program is the most attractive solution for customers who want to secure liquidity. Of course, we must continue to examine each individual case closely.
What is important in individual cases?
Boekhout: We have to do a credit check for the KfW program – and we take that very seriously. We have accelerated our processes and increased our internal capacities. But we cannot and must not wave through loans simply because the state assumes 80 to 90 percent of the liability as part of the KfW program. KfW requires us to carry out a clean check in individual cases, and in the end we have to assume regulatory liability today. For example, companies that did not have a sustainable business model at the end of 2019 or who no longer met the framework conditions in existing loan agreements, known as covenants, have no chance of receiving KfW assistance under the program.
How many companies will you be unable to help?
Mandel: It’s difficult to estimate. For many companies, this can only be answered after a detailed examination. Basically, I think it’s great how quickly politicians reacted and launched three programs: the stabilization fund for large companies, the KfW loan program for medium-sized companies and direct grants for small businesses and the self-employed. But of course there are border areas with companies for which none of the programs really fits. However, I am confident that politics will improve it again.
Vitae Roland Boekhout and Michael Mandel
Where do you see need for adjustment?
Boekhout: There are many companies that are too big to get subsidies for small businesses, but too small for the economic stabilization fund. These are often companies with an annual turnover of between 500,000 and 50 million euros. There are many of them in Germany. In total, these companies generate sales of more than two trillion euros per year.
Sparkassen President Schleweis said recently in the Handelsblatt interviewthat many customers do not help loans, but that they need equity. Do you see it similarly?
Boekhout: Yes. There are sectors in which companies will find it difficult to recover from the corona crisis quickly enough to bear the built-up debt burden. Such companies need fresh equity, otherwise it will not be possible for banks to grant them further loans. It is currently difficult for such companies to raise equity on the capital market. But perhaps the stabilization fund can be designed by politicians to help these companies.
When do you expect details about the structure of the fund?
Boekhout: I am not involved in the discussions. But I hope that everyone involved will get clarity in the next few weeks. The decision-makers in Berlin know that time is of the essence for many companies.
The will to help is great everywhere at the moment. Do you see the danger that doomed companies will be artificially kept alive with aid programs?
Boekhout: This danger exists. You can’t blame entrepreneurs for looking for ways to save their company – also through the use of aid programs. But it is not economically responsible to help companies with short-term financing that they cannot repay in the long term. In individual cases, we unfortunately also had to inform companies that we could not provide them with any further funds. In such cases I am there from time to time and can tell you: These are not conversations that give me pleasure.
Some companies complain that many banks are currently unwilling to accept new customers.
Boekhout: We are still open to new customers, but our focus is currently clearly on existing customers, with whom we have often been a house bank for decades. Many of these customers remained loyal to Commerzbank when we were not doing so well. We now want to repay this trust. We are indeed more cautious with new customers and are no longer aiming for as much growth as in previous years.
Does that mean that the expansion in medium-sized businesses in Austria, France and Italy announced at the end of 2019 is on hold?
Boekhout: We are present in all of these countries and continue to aim to expand our business there. But at the moment we need all the resources to be there for our existing customers.
Do you also stop advertising for new private customers?
Mandel: No, on the contrary: Obviously, many people currently have time to deal with their banking business. Since the beginning of the year, we have won 130,000 new private customers at Commerzbank and Comdirect – mainly online, of course. In the last week of March alone, we saw growth of 10,000 new customers.
In this crisis we can be part of the solution. Michael Mandel
Can you currently handle such a rush at all?
Mandel: It’s a challenge, after all, about half of all employees currently work in the home office. But the technology works and there is a good corps spirit. Banks were part of the problem in the 2008 financial crisis. In this crisis we can be part of the solution. That motivates everyone.
Does the branch business still work in times of Corona?
Almond: Of our approximately 1,000 branches, the largest 200 are open normally. We temporarily closed 150 branches because there are alternative locations nearby. There is no regular customer traffic in the remaining more than 600 branches, but we can be reached by phone and email. Customers can also make appointments. We have equipped our ATMs with significantly more cash. In mid-March there were a few days when customers withdrew an exceptional amount of money. In the meantime, however, this has returned to a normal level.
The corona crisis will also increase the pressure on the banks. Do you expect Commerzbank and other institutes to face difficulties like in 2008?
Mandel: We have massively reduced our total assets in recent years and strengthened our equity. Our liquidity base is also much better. Our buffers are significantly larger, that’s the big difference to 2008.
Boekhout: Of course, we make regular calls to the financial regulator today than is the case in normal times. But that’s right. Finally, the supervisory authority must also have an overview of the situation so that it can identify potential market dangers at an early stage. The discussions with the supervisory authorities are very constructive. There is a common effort to overcome this crisis as best as possible.
The recession will worsen the rating of many corporate customers. There will also be more bankruptcies and defaults. Are you worried?
Boekhout: So far, the absolute majority of our corporate customers have managed the corona crisis relatively well. But we are watching the situation closely. We are at the very beginning – and not yet in the center of the storm. The climax of the crisis is still ahead of us. Our economists expect the German economy to shrink by 3.5 percent this year. This will of course leave a mark on our customers.
Does this mean you have to increase the risk provisioning for loans at risk of default?
Boekhout: We have done our homework in recent years and significantly reduced risks. It is too early at the moment to say how the corona crisis will affect our credit book. It depends on how long this shutdown will take. However, due to the close cooperation of the banks with the federal government within the framework of the state support programs, we assume that the impact on our customers’ ratings and the risk provisioning of the banks will remain manageable. At the moment, however, nobody can reliably predict what the effects will be in the medium term.
Are you afraid that, as in 2009, Schaeffler, another of its major customers, will falter again?
Boekhout: So far, the situation of our major customers has been quite stable. Almost all of them have enough buffers to bridge short-term liquidity shortfalls. For many, the focus is currently on organizing short-time work for parts of their workforce. Most of them want to continue to finance themselves through the capital market, but have agreed temporary credit lines with us as a precaution. Since the situation on the bond market is now improving again after three weeks of shock, the first companies are already placing bonds again and would not have to draw our credit lines at all.
Bond prices have risen and interest rates on loans are also rising. Is there now a long-awaited price correction on the overheated German corporate customer market?
Boekhout: Our focus is on bridging customer bottlenecks – this is not a commercial exercise. But it is quite possible that there will be a price correction – that would definitely be in line with the market. We can also see that companies that we support with credit in the corona crisis are also increasingly handling capital market business through us.
Finance minister Olaf Scholz says the fight against the corona crisis is a joint national effort, in which the banks sometimes have to “let five down”. Is that possible?
Mandel: The banking industry is still a highly regulated industry – and we have to abide by the existing rules. But within the rules, we have to do everything we can to help our customers quickly and pragmatically. Speed is now the first civic duty.
How fast are you in lending?
Almond: In some cases, we last paid out loans within a day. Because many companies have to be quick, we have set up an internal special fund with a volume of EUR 700 million. We use this liquidity to pay out the requested development loans directly. This is how we bridge the time until KfW transfers the funds. KfW funds are to flow from April 6.
The rating agency Fitch recently lowered the credit rating of the institute.
What is the situation like among private customers?
Mandel: If private customers are affected by short-time work due to the corona crisis or suffer other loss of earnings, we suspend repayment for construction loans for six months and for installment loans for three months. We will then discuss what happens afterwards with the customers.
The rating agency Fitch downgraded Commerzbank, among other reasons, because the corona crisis poses a great risk that the “Commerzbank 5.0” strategy cannot be implemented as planned. How big is the danger?
Mandel: Our top priority is to keep business going and to help our customers through the crisis. But that doesn’t mean that we deviate even one iota from our strategy. I took part in a conference call just before this interview. So far there have been no delays in implementing the strategy.
They don’t just want to implement the strategy, but want to further tighten the austerity measures decided in September 2019. The figure of 500 million euros is cited as a possible target for additional savings. Will the corona crisis make it more difficult?
Mandel: A strategy is not a static thing that you set for four years and then don’t touch. Fine tuning is always necessary. We started looking for additional savings in autumn. The talks are well on the way. Roland has also brought in his ideas since he joined us. Of course, things sometimes get more difficult organisationally when there is a personal contact block. But if one or the other doesn’t work because of the crisis, we have to make up for it later.
The corona crisis is a major turning point. Is it enough to fine-tune it afterwards – or should you think about the orientation of the bank again?
Mandel: So far, the crisis has been more of a confirmation that we are doing the right things. This applies, for example, to our focus on “Mobile first”, ie the further development of banking offers for the smartphone. Our plans to do more business with existing customers and to drive digitalization through the integration of Comdirect will still be correct even after the crisis.
The banking regulator Eba has asked the banks to review their remuneration policies, especially the variable remuneration. At individual banks such as Santander, board members have already announced that they will voluntarily forego half of their salary. Are there similar plans at Commerzbank?
Mandel: I think we have always been very responsible with remuneration issues. We will continue to do so in the future.
Mr. Boekhout, Mr. Mandel, thank you for the interview.
More: Commerzbank wants to tighten austerity measures and relies on consultants.